Saturday, January 10, 2009

January 30 will be a political and economic milestone

The BEA releases its advance estimate of 2008 Q4 real GDP on January 30. There is a chance (admittedly, less than 50%) that it will show that real GDP was HIGHER in Q4 than in Q3.

If so, the release will unleash a huge political and economic debate. Washington will be in the middle of the preparation of a massive stimulus package. The employment numbers (December employment is released Jan 9) will undoubtedly help the case for stimulus, but real GDP growth would make a great case against. How can we justifying a huge spending bill if GDP were seen to grow without it?

They state that "Final GDP figures will be used for expiry - not the advance or preliminary numbers. Any further revisions made to the final GDP figure released by the BEA will not be considered and will not effect the original expiry."

Politicians care about reelection and not GDP. If voters or their relatives or friends are unemployed, the voters will be unhappy with their politicians. They will be unhappy even if GDP growth is positive.

If there is GDP growth without employment growth, people will complain about inequalities in income and wealth distributions.

Supply and Demand (in that order)

The basic tools of supply and demand help immensely to understand and predict everyday events in our world. These days, many of those events are related to the Redistribution Recession of 2008-9. But I also look at other issues related to fiscal policy, labor economics, and industrial organization.